Mid-Morning Look

Wednesday, June 04, 2025

U.S. stocks a little choppy after back-to-back days of +0.5% gains for the S&P 500 (SPX), approaching the 6,000 level but seeing a little back and forth early. The dollar index (DXY) rolls to lows around 98.80, down -0.45% after the weaker ISM data and Treasury yields fall to lows as well with the 10-yr at 4.38% (stocks already bouncing off small dip). Previously, the dollar and yields fell after a softer ADP private payroll report, which prompted President Trump commentary, blaming Federal Reserve Chair Jerome Powell for not lowering interest rates after ADP said the pace of hiring in the private sector fell to its lowest levels since March 2023. Trump tweeted, “”ADP NUMBER OUT!!! ‘Too Late’ Powell must now LOWER THE RATE. He is unbelievable!!! Europe has lowered NINE TIMES!” Outside of the weaker data today, focus on earnings (CRWD, DLTR, ASAN slip on results while GWRE, HQY, YEXT rise).

ADP said the private sector added 37,000 jobs in May, the smallest gain since March 2023, after a downwardly revised rise of 60,000 in April, coming in well below the consensus gain of 110K jobs. The data comes ahead of the more comprehensive employment report for May that is due to be released on Friday by the Labor Department’s Bureau of Labor Statistics. Also, a negative ISM Services reading, as ISM non-manufacturing sector shows PMI 49.9 in May (1^st time below 50 since June 2024) below consensus 52.0 and vs 51.6 in April while priced paid (inflation) rose.

In trade news today: Last night on Truth Social, President Trump said, “I like President XI of China, always have, and always will, but he is VERY TOUGH, AND EXTREMELY HARD TO MAKE A DEAL WITH!!!” Separately, EU trade commissioner Maros Sefcovic said that he and his Chinese counterpart had agreed to clarify the rare earth situation as quickly as possible. Also, The tariff order increasing steel and aluminium imports to 50% are now in effect as of today. While tariffs on UK metals will remain at 25% for now, the order gives both countries until July 9 to finalize a new arrangement involving quotas or revised duties.

There also remains concerns in Washington about the rising debt as the nonpartisan Congressional Budget Office released a revised estimate of the cost of President Donald Trump’s tax-cut bill passed by the U.S. House of Representatives, concluding it will add $2.4 trillion to the federal government’s $36.2 trillion debt. An earlier CBO estimate predicted the Republican bill, which passed on May 22 with no Democratic support, would add around $3.8 trillion to Washington’s debt over the next decade.

• S&P Global May final composite PMI at 53.0 (vs flash 52.1), while U.S. S&P Global May final services PMI at 53.7 (vs flash 52.3).
• ISM non-manufacturing sector shows PMI 49.9 in May (1^st time below 50 since June 2024) below consensus 52.0 and vs 51.6 in April; the service business activity index 50.0 in May vs 53.7 in April; prices paid index 68.7 in May vs 65.1 in April; new orders index 46.4 in May vs 52.3 in April; the employment index 50.7 in May vs 49.0 in April.
• The NY Fed survey showed most firms passed through to customers at least some of tariffs; one third of factory firms, about 45% of service firms passed on all tariff increases; three quarters of factory firms, service firms passed on some amount of tariffs; switching to domestic sources may have blunted some of tariff increase; firms were very uncertain about tariff outlook.

• In Industrials: GTLS and FLS agreed to merge in an all-stock deal worth approximately $19 billion, the companies announced Wednesday. Once finalized, Chart shareholders will own roughly 53.5% of the combined company and Flowserve shareholders will own 46.5%. ACM has been selected by the U.S. Air Force Civil Engineer Center (AFCEC) to deliver global architecture and engineering services through a multiple award task order contract (MATOC) under an indefinite delivery, indefinite quantity framework. The contract ceiling is $1.5B, with services to be delivered over a five-year base period and a five-year option period.
• In Aerospace & Defense: there were reports overnight that China is considering buying hundreds of Airbus (EADSY) planes as soon as next month which would be a clear message to the Trump administration (as selects over BA); ERJ was upgraded to Buy, PT to $57 from $45 at HSBC saying strong deliveries in Executive and Defense, and EVE’s first full-scale prototype flight to embark in 2025 and says likely limited impact from the new US tariffs.
• In Hardware: AAPL was downgraded to Hold from Buy at Needham saying innovations in generative AI opens the door for new hardware form factors, which could threaten iOS devices. OpenAI bought Jony Ive’s startup io Products in a $6.5B deal and will bring the chief designer of early iPhones on board as creative head to make a GenAI device in a new form factor, taking users away from screens. HPE reported strong 2Q results, beating on top and bottom-line, 3Q guide as reflects a large AI server deal closing in the qtr while FY25 rev guide lowered from 11% to 9% in cc at the high end of the range, and raised FY25 EPS.
• Software movers: BASE delivered better-than-expected 1QFY26, showcasing steady execution, strong ARR growth (+21% YoY), and Capella also continues to show gains and is now 17.4% of total ARR, but Q2 was below Street expectations and macro continues to be a headwind. ASAN shares fell as the company signed its largest deal in history in the quarter, a three-year 100M total contract value deal, but Keybanc noted the expansion deal that extended the contract term from one to three years, came at a cost in a lower average annual contract value (ACV); SNOW upgraded to Buy at UBS, said stock still has room to run despite being up 35% year to date, based on industry checks and recent results (raised tgts on PLTR, DBRK as well).

• HQY +9%; reported Q1 beat with revenues coming in ~2.5% above consensus, driven by higher custodial revenues on higher assets + higher yields while adj. EBITDA of $140.2M handily topped consensus by 14%.
• LITE +7%; raised its Q4 EPS view to $0.78-$0.85 from prior $0.70-$0.80 and consensus $0.75; raises Q4 revenue view to $465M-$475M from $440M-$470M (est. $457.5M) and boosts its Q4 operating margin view to 14%-15% from 13%-14%.
• RDW +17%; after receiving NASA approval to advance cutting-edge manufacturing technology for building infrastructure on moon and Mars.
• SNOW +1%; new 52-week highs after being upgraded to Buy at UBS, said stock still has room to run despite being up 35% year to date, based on industry checks and recent results.
• THO +3%; shares jumped after better results as Q3 EPS $2.53/$2.89B topped est. $1.80/$2.61B as Q3 results exceeded on both the top and bottom lines; sees FY25 EPS $3.30-$4.00 vs. consensus $3.47 and sees FY25 revenue $9.0B-$9.5B, vs. consensus $9.23B
• WFC +1%; shares rose after the Federal Reserve announced the bank is no longer subject to the 2018 asset cap over sales practices scandal saying the bank has met all the conditions required to remove the cap, including improving governance and risk management programs.
• YEXT +27%; shares rallied on earnings while B Riley upgraded to Buy to reflect a) Q/Q improvement in KPIs (retention, ARR) accompanied by modestly better Q1 results and outlook, and notes a track record of strong execution by management.

• CRWD -4%; pulling back from all-time highs after reported solid Q1 results to kick off FY26, with ARR growing 22% y/y to $4.44B and net-new ARR landing at $212M — roughly flat y/y, announced a new $1B share repurchase program, but only reaffirmed FY26 revenue guidance of $4.74–$4.81B 9while raised year EPS view) as high expectations after a great in shares weighed on the stock.
• DLTR -710%; a day after the group surged behind better results and guidance from DG, prompting several analyst price tgt hikes and an upgrade at Oppenheimer (to OP from PP), DLTR reported Q1 earnings, sales and comp sales better than expected as raised guidance for the year EPS outlook to $5.15-$5.65 from $5.00-$5.50
• GTLS -3%; and FLS agreed to merge in an all-stock deal worth approximately $19 billion, the companies announced Wednesday. Once finalized, Chart shareholders will own roughly 53.5% of the combined company and Flowserve shareholders will own 46.5%.
• MRUS -8%; as 5.27M share Spot Secondary, priced at $57.00
• TSLA -3%; underperforms in Mag 7 space on weaker data; deliveries of China-made Model 3 and Model Y vehicles, including both domestic sales and exports to Europe and other markets, fell 15% in May from a year earlier to 61,662 vehicles